The Setting Every Community Up for Retirement Enhancement Act, or SECURE Act, was made effective in January 2020. Due to the changes presented in this new law, individuals that engage in estate planning should review their beneficiary arrangements on all their tax-qualified retirement plans. The SECURE Act has several provisions that may yield positive or negative results, depending on your retirement or IRA accounts. If you want to make sure that you have a comprehensive estate plan, then you will want to ensure that you understand the ins and outs of the SECURE Act.
What is The SECURE Act?
The SECURE Act is designed to simplify the process it takes for small businesses to extend retirement plans and other benefit plans to their workers. The act itself was created in order to help the average working individual save for their retirement. While the SECURE Act has some positives and negatives, depending on your own situation, the act seeks to help improve the long-term retirement issues that are forecasted to impact future generations. The SECURE Act has faced some criticism for removing certain provisions that could potentially create negative situations for inheritors.
What Does The SECURE Act Do?
The main purpose of the SECURE Act is to help curb the anticipated retirement crisis, by attempting to help both employers and employees. While there are 29 different provisions that you should become familiar with in order to understand whether or not to make changes to your estate plan, some main ones are:
- The age you can contribute to your retirement plan is extended.
- Tax credits and other benefits are offered to smaller businesses, in order for them to offer 401k plans to their employees.
- Gig employees have the potential to be eligible for 401k plans.
- The age when you need to start taking out Required Minimum Distributions is extended.
Who Benefits from The SECURE Act?
There are several different categories of taxpayers that could benefit from the SECURE Act, including small business owners and employees that are trying to save for their retirement. While these benefits might seem all encompassing, there may be instances where they are not applicable. Each individual circumstance should be investigated beforehand, in order to determine eligibility.
Small business owners. Small business owners are one of the groups of people that could benefit from the SECURE Act, as the act allows for business owners to offer retirement plans for their employees. This helps bring in more qualified talent, as having access to a retirement plan is an attractive benefit option. Smaller businesses that could previously not have access to providing benefit plans, now could have more access, allowing them to retain the talent they already have.
Part-time workers. One of the major downsides for part-time workers is the lack of access to benefit programs through their employer. Through the SECURE Act, some of these limitations that previously held true are withdrawn, meaning part-time workers could have access to more opportunities to save for their retirement.
Retirees. Through the SECURE act, the age limit that retirees can contribute to retirement plans is eliminated. So, you will now be able to save over the course of a longer period of time. Previously, the age was set at 70 and a half years old.
Effect of The SECURE ACT on RMDs
Previously, you had to take out your first Required Minimum Distribution, or RMD, when you were 70 and a half years old. The amount that you were required to take would change year to year, as it was determined by your total asset amount. With the SECURE Act, you will not need to take your first Required Minimum Distribution until you are 72 years old.
Effect of The SECURE ACT on 401ks
Your employer will be able to contribute four percent, instead of the previous 3 percent, to your 401k. Even if you switch jobs, you will be able to move your income investment to your new 401k plan. The minimum for working hours in order to be eligible to contribute to a 401k plan is 500 hours in the last three years.
Effect of The SECURE Act on Charitable Contributions
Through proper estate planning, you can ensure that money is given to causes you care about when you pass. While you can still make donations up to $100,000 annually, your QCD, or qualified charitable distribution, will not be considered taxable income. Since you can contribute to your IRA past the age of 70 and a half, the amount is reduced to any donations after that age.
What is the 10-Year Distribution Rule?
Prior to the SECURE Act, beneficiaries could withdraw distributions according to their life expectancy. This was considered a tax advantage for many individuals. The 10-year distribution rule states that the whole IRA has to be distributed within 10 years of the individual passing. This includes traditional and ROTH IRAs. It applies in almost all non-spousal IRA beneficiary situations.
Speak with a Professional California Trust and Estate Planning Attorney
Each retirement or IRA account holder could be affected differently by the SECURE Act. Familiarity with the SECURE Act, as well as how the SECURE Act affects you individually, is essential to know if you should update your estate plan. Estate planning, in and of itself, can be an overwhelming process. Knowledge of legal terms and needing to fill out necessary documentation can make estate planning for your future a confusing process. However, it does not have to be this way. In order to better determine where and how to make changes, as well as discuss other planning options, speaking to a professional for guidance can help get you to where you need to be.
At Galanti & Copenhaver, we understand the ins and the outs of the estate planning process and are well-equipped to help you through your unique circumstances. With our experienced team, each client is granted an individualized experience. Our professionals are dedicated to helping you navigate this process with ease. Call our team today to schedule an initial consultation.